Zimmer Biomet Holdings, Inc. (ZBH) Earnings & Analysis

Latest quarter

Zimmer Biomet reported third-quarter net sales of $2.063 billion, up 3.1% from a year earlier and above the consensus estimate. Adjusted diluted earnings per share were $1.90, compared with the consensus estimate of $1.89. The company said adjusted EPS was consistent with the prior-year quarter.

The filing attributed sales growth to acquisitions, customer purchases near quarter-end, new products and higher sales of foot and ankle products, ROSA robots and bone cement. Knee sales fell 3.1% to $767.5 million; the filing cited the U.S. sales-force transition and competition, as well as a distributor transition in China. Hip sales rose 6% to $536.5 million.

Gross margin fell to 71.2% from 72.1%, while operating margin declined to 14.9% from 17.6%. The filing said net earnings fell to $191.6 million from $230.9 million, primarily because favorable acquisition-related contingent consideration adjustments in the prior-year quarter did not recur. Zimmer Biomet generated $372.4 million in third-quarter free cash flow.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

The available earnings call covered the second quarter, before the third-quarter results. CEO Ivan Tornos said the U.S. sales-force transition was progressing better than expected, with less customer disruption and turnover than initially anticipated. He said Zimmer Biomet was accelerating the changes in some territories and remained on track to complete the specialized sales structure by the end of 2027.

Asked about selling expenses, Tornos characterized the transition as a growth strategy rather than a cost-saving effort. He said Zimmer Biomet had secured retention agreements, locked in its top six independent distributors and was partway through recruiting 200 technology representatives. Interim CFO Paul Stellato said second-quarter adjusted operating margin fell to 25.7% as the company continued investing in its U.S. channel.

On demand, Tornos said the company monitored waiting lists, cancellations and referral cycles and was not concerned about overall market health. He said the launch of its iodine-coated hip implant in Japan had gone better than expected, although the company was struggling to supply products at the pace of demand. Zimmer Biomet was discussing a pathway to the U.S. with the FDA, he said.

Stellato said pricing was an 80 basis point headwind in the second quarter and remained within the company’s annual assumption of up to 100 basis points of pricing pressure. He also said the company expected third- and fourth-quarter constant-currency growth rates to be consistent, with foreign exchange a 50 basis point headwind in the third quarter.

In the subsequent third-quarter filing, Zimmer Biomet said knee sales declined amid the U.S. sales-force transition and competition, as well as its distributor transition in China.

Guidance

Zimmer Biomet now expects 2026 reported revenue growth of 4.40% to 4.90%, compared with its previous range of 3.90% to 4.90%. It raised its organic constant-currency growth outlook to 3.00% to 3.50% from 2.25% to 3.25%, and its constant-currency growth outlook to 4.10% to 4.60% from 3.4% to 4.4%.

The company also raised its adjusted diluted EPS outlook to $8.50 to $8.60 from $8.47 to $8.59.